As in other segments of the solar supply chain, cost reductions are a vital part of every player’s focus in the balance-of-system (BOS) market. The figure below illustrates the BOS cost breakdown for a 10-megawatt fixed-tilt, ground-mount project in the U.S. As can be seen, the largest cost component is labor, followed by the mounting structure and foundations (SBOS). Those two components account for 49 percent of the total BOS cost for the crystalline silicon (c-Si) system.

In regards to BOS cost reduction, the U.S. market is one of the most critical and best-suited global markets for several reasons:

Government investment: The U.S. Department of Energy’s SunShot Initiative aims to reduce the cost of solar power to $1 per watt by 2017. The Secretary of Energy has stated that the goal of SunShot is to subsidize technology development and drive down the cost of solar energy to release the burden of subsidization from the federal government through the ITC and other incentive programs.

Market diversity: The U.S. is in essence 50 different solar markets due to the prevalence of state subsidy programs. This has befuddled most foreign market entrants because of the complexity and unique aspects of each state’s program, but it also provides the U.S. market with a slower overall growth pattern than a market with one blanket policy as in Italy or Germany. This levels the playing field a bit in terms of technology development; as BOS cost reductions improve overall costs in one market, another can take advantage of the improvements. Ultimately, this will help states determine accurate and sustainable pricing for new subsidy programs and relieve the burden of overpricing subsidies from the taxpayer and state programs.

Climate diversity: The range of climates in the United States can allow technological advances, new products and new techniques to be validated in snowy as well as tropical settings. This will improve product bankability and allow the advances to be scaled worldwide more rapidly. Because of the lack of climate diversity in Germany, inverter manufacturers like Siemens and SMA suffered setbacks to their product development and reputations for reliability when they first started installing inverters in the markedly different climates of the Southwestern U.S.

High labor costs: The U.S. has some of the highest labor costs in the world. Thus, stakeholders are deeply incentivized to develop products and best practices that reduce labor time and accelerate project delivery time. Emerging markets like China and India have very low labor costs and therefore less incentive to develop material and labor innovations that will reduce labor time.

Less aggressive subsidy programs: U.S. policymakers have the luxury of learning from the rest of the global solar market’s failures in subsidy policy development. When subsidy rates are set too high, as in Ontario and some EU markets, innovations to reduce costs are less emphasized. Subsidy programs take significant resources to unwind their poor policy attributes after they are instilled, and their adaptations to more conservative but sustainable rates result in reduced investment by developers and manufacturers in the region. Clearly, the results of poorly structured programs are contrary to the intention of creating market growth. Programs in the U.S. are less aggressive. Feed-in tariffs are slow to catch on, and in some cases have been deemed illegal by utilities and state energy commissions tasked with developing programs. Consequently, to achieve success in this market, BOS cost reduction in the U.S. is more critical because there is less of a subsidy cushion to fall back on.

GTM Research's latest report on BOS markets forecasts costs to fall $0.07 per watt to $0.08 per watt per year from 2012 to 2016 (5.5 percent to 6 percent per year). It should be noted that GTM's forecast includes a margin of 11 percent to most accurately approximate the BOS costs currently seen in the market -- these could be captured by the EPC firm or in other parts of the value chain.

The U.S. market is poised to assume a prominent role in BOS cost reduction over the next five years. Standard designs, new products and best practices that allow solar to be installed with manageable but not overstated profits will be developed in the U.S. and exported to new markets. This will create a global market less reliant on subsidies and more available for sustained and effective growth.

SAN DIEGO, Dec. 17, 2012 - San Diego Gas & Electric (SDG&E) today announced that it has successfully completed two new long-term power purchase agreements in Imperial Valley totaling 40 megawatts (MW) of renewable energy with diverse business enterprise (DBE) participation. The first contract is DBE-owned via a partnership between Regenerate Power and DBE supplier Tallbear Solar. The second contract is with a partnership between 8minutenergy and Gestamp Solar, who has committed to contracting 50-percent of the project costs to diverse-owned businesses.

"SDG&E has made a concerted effort to increase the number of diverse-owned suppliers we do business with in electric procurement," said Matt Burkhart, SDG&E's vice president of electric and fuel procurement. "We look forward to continuing to expand DBE participation in our procurement portfolio as we meet our retail customers' needs."

The first of the agreements is a 20-year contract with Tallbear Seville LLC to purchase 20 MW from the Seville solar power facility northwest of Brawley in Imperial County. When completed in 2015, the Seville project will be comprised of photovoltaic single-axis modules and the power will be transported to SDG&E's customers across the 117-mile Sunrise Powerlink transmission line, which was put into service this past June.

"Regenerate Power and our DBE affiliate Tallbear Solar are proud to sign this landmark agreement with SDG&E for the Seville Solar Project. We look forward to working with SDG&E, the Imperial Irrigation District and Imperial County to realize the strategic potential of this project," said Reyad Fezzani, chief executive officer of Regenerate Power and president of Tallbear Solar.

The second of the agreements is a 20-year agreement to purchase 20 MW of energy from the Calipatria Solar Farm, also in Imperial County, from 8minutenergy Renewables' subsidiary, 70SM1 8ME, LLC and its partner on the project, Gestamp Solar. The Calipatria project is expected to be completed in 2015, and the power from the fixed-tilt solar photovoltaic facility will also be transmitted to SDG&E's service territory via the Sunrise Powerlink.

"The Calipatria Solar Farm will deliver clean energy to over 9,000 households in SDG&E's service area and create more than 50 direct and 100 indirect jobs in the Imperial Valley," said Martin Hermann, chief executive officer for 8minutenergy Renewables. "We would like to thank SDG&E for their continued commitment to the Imperial Valley, where the unemployment rate is among the highest in the nation."

In 2011, SDG&E delivered 20.8 percent of its retail sales with renewable energy. It also signed 17 new renewable energy contracts for a combined total of 1,482 MW. This year, the company has signed 13 renewable energy contracts, bringing the total number of megawatts signed over the past two years to 1,879 MW.

SDG&E has been a national leader in providing opportunities for DBE natural gas businesses for more than 20 years. In 2011, SDG&E purchased more than $65.5 million, or 34 percent, of natural gas for electric generation supply from DBE suppliers. Starting in 2011, SDG&E began planning for the California Public Utilities Commission Supplier Diversity Program's new requirement to report on DBE spending in electric procurement.

Overall, in 2011 SDG&E reported that 38.13 percent of products and services were provided by DBEs. SDG&E spent a total of $546 million on purchases with women, minority, and service-disabled veteran-owned businesses in 2011 – a nearly 42 percent increase in spending over 2010.

SDG&E is a regulated public utility that provides safe and reliable energy service to 3.4 million consumers through 1.4 million electric meters and more than 850,000 natural gas meters in San Diego and southern Orange counties. The utility's area spans 4,100 square miles. SDG&E is committed to creating ways to help customers save energy and money every day. SDG&E is a subsidiary of Sempra Energy (SRE), a Fortune 500 energy services holding company based in San Diego.

Goldman Sachs Group Inc. (GS), the top arranger for renewable-energy stock offerings last year, is accelerating its funding efforts as it anticipates a rebound in an industry that’s slumped every year since 2009.

Goldman overtook Morgan Stanley as the biggest lead manager for share offerings with three deals valued at $405.6 million, according to an annual ranking by Bloomberg New Energy Finance.

The investment bank is backing renewable energy that it expects will gain favor in a global shift it says is inevitable. That’s why short-term volatility will be trumped by long-term gains as emerging technologies first become commonplace and then become indispensable, according to Stuart Bernstein, the Goldman partner overseeing its renewables unit.

“It feels like the worst is behind us,” Bernstein, 49, said in an interview from his office in San Francisco. “I’m a contrarian, so when everyone else is capitulating, I think it’s time to invest.”

Goldman may boost its financing efforts this year as it seeks to meet a pledge made in May to invest and finance more than $40 billion in the industry in the next decade. Worldwide, more than $395 billion will be invested annually in renewable energy by 2020, he said.

The company has made equity investments in solar developer BrightSource Energy Inc. (BRSE) and Horizon Wind Energy, which it sold to EDP-Energias de Portugal SA in 2007.

Goldman’s Deals

In September, Goldman underwrote a $225 million follow-on offering for the electric-car company Tesla Motors Ltd. (TSLA), along with IPOs for the rooftop photovoltaic developer SolarCity Corp. (SCTY) in December and the biofuel crop developer Ceres Inc. (CERE) in February.

The industry is so important that when Goldman’s top executives visit the West Coast, up to Chief Executive Officer Lloyd Blankfein, “they don’t just visit our largest market-cap clients, they also spend time with our early stage clean-tech companies,” Bernstein said. Clean energy is “central to the Goldman Sachs franchise.”

The WilderHill New Energy Global Innovation Index (NEX), known as the NEX, slumped 5.5 percent last year, adding to 40 percent and 15 percent declines in the two previous years as investors pared their appetite for risk and governments slashed incentives for the industry. TheBloomberg Industries Large Solar Energy (BISOLAR) index of 17 companies fell 26 percent last year.

Renewable Rebound

Renewable shares have rebounded in the past few months as risk appetite returned. The NEX, which tracks 94 clean-energy stocks, has climbed more than 20 percent since Nov. 16, and the Large Solar index surged 81 percent.

“The market appears to have toughed in the fourth quarter of last year and several sectors have rallied meaningfully since then,” Bernstein said.

His comments coincide with a deal in the U.S. to extend a tax credit that supports wind-turbine installations. The policy was due to expire Dec. 31 and lobbying efforts to renew it received a boost after President Barack Obama’s re-election.

The solar industry is also gaining, with the first consecutive monthly increases in polysilicon prices since January 2012. Polysilicon, the raw material in most solar panels, has risen 1.3 percent since Dec. 24 to $16.03 a kilogram on Jan. 7, according to data from New Energy Finance.

Goldman has been investing in renewable energy since at least 2005, and has a long-term view, said Ethan Zindler, an analyst with New Energy Finance.

‘Credibility’

“They have considerable credibility within this sector,” he said in by e-mail. “They have seen the various ups and downs, so they have significant perspective as well.”

Goldman last took the top position in 2010, losing the slot to Morgan Stanley (MS) both in 2011 and in 2009. Morgan Stanley and UBS AG (UBSN) were co-lead managers on China Longyuan Power Group Corp. (916)’s $375 million stock offering in December, the biggest fund-raising in the public markets in 2012.

"This is going to be an extraordinarily large emerging market much the same way we viewed the BRICs."
The deals by Goldman last year trumped the $363.8 million managed by Shanghai-based Guotai Junan Securities Co. Ltd., according to data compiled by New Energy Finance, a Bloomberg research company. The Chinese company handled the secondary stock placement of power-generator Shanghai Aerospace Automobile Electromechanical Co. (600151) and Shenzhen Jiawei Photovoltaic Lighting Co. (300317)’s IPO.

Tesla, based in Palo Alto, California, has more than doubled since its June 2010 IPO, and its shares are up 49 percent in the past year. SolarCity has gained 77 percent since trading began.

‘Bring Investors’

“The success of SolarCity’s IPO may bring investors back to the markets and create future financing and M&A opportunities,” Bernstein said. “There will be interesting IPOs in several sectors over the next few years.”

Bernstein, a Goldman partner, has also worked in private equity and is on the selection committee for the company’s clean technology and renewables group. He spends most of his time at Goldman’s office on Sand Hill Road in Menlo Park, California, famous for its venture capital culture.

The investment bank created Bernstein’s unit about three years ago to focus exclusively on renewable energy and take advantage of what it saw as a promising long-term play, he said. He compared the industry to the technology market in the 1990s, which was once seen as fraught with risky new technologies that are now the backbone of the information age.

“We have a growing global population coupled with an increasing per capita consumption of energy, while fossil resources are finite and shrinking,” he said. Backing renewable energy isn’t just an investment strategy, it’s a necessity, he said. “How can one not consider clean energy and renewable alternatives?”

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